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Income Tax Appellate Tribunal, BENCH ‘A’ KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM ]
ORDER PER BENCH is an appeal by the Revenue while ITA No.556/Kol/13 is an appeal by the Assessee. Both these appeals are directed against the order dated 4.1.2013 of CIT(A)-XX, Kolkata, relating to AY 1996-97.
At the time of hearing of the appeal, the learned counsel for the Assessee submitted that the Assessee does not want to press adjudication of its appeal and that the Assessee’s appeal may be dismissed as not pressed. The request is accepted and the appeal of the Assessee is dismissed as not pressed.
As far as the appeal of the revenue is concerned, the facts are that the Assessee is a partnership firm engaged in the business of import of polypropylene and sells them ITA Nos.997&556/Kol/2013-M/s.More International-A.Y.1996-97 when the imported goods are in the course of import and while they are in high sea. For AY 96-97, the Assessee filed a return of income on 29.11.1996 declaring total income of Rs.21,889/-. An order of assessment was passed u/s.143(3) of the Act on the said return of income on 30.3.1999. The total income of the Assessee was determined by the AO in the said order at Rs.16,51,168/-. In the said order of assessment the AO has acknowledged the fact that there was a search and seizure operation at the business premises of the Assessee as well as its sister concerns at No.23A, N.S.Road, Calcutta by the Department of Revenue Intelligence (DRI) on 30.11.1995, 1.12.1995 and 3.6.1996. Books of accounts seized by the DRI were requisitioned by the Income Tax Department u/s.132A of the Income Tax Act, 1961 (Act). Based on the seized documents so requisitioned, the AO came to the conclusion that the Assesssee had made sales to Sagittarious Era of Rs.77,50,000 but recorded only sales of Rs.61,76,217 in the books of accounts. The difference of Rs.16,09,632 was sought to be added to the total income of the Assessee. The Assessee in reply had submitted that the sale figure of Rs.16,09,632 was in fact sale made to an entity by name M/S.Canny Enterprises which is duly recorded in the books of accounts of the Assessee and the entry in the seized document of the said sum as sale to Sagittarious Era is a mistaken description written by the Accountant of the Assessee. This explanation was not accepted and one of the additions made in the order u/s.143(3) of the Act was the aforesaid sum of Rs.16,09,632/-. The aforesaid addition was challenged by the Assessee before CIT(A) and on further appeal the ITAT I by its order dated 20.10.2003 had set aside the assessment to the AO to be done afresh. The matter stood thus in so far as the original proceedings u/s.143(3) of the Act are concerned.
The AO on 28.3.2003 had issued a notice u/s.148 of the Act for AY 1996-97 for bringing to tax income that has escaped assessment. The reasons recorded by the AO for issue of notice u/s.148 of the Act for making an order of reassessment u/s.147 of the Act have been set out by the AO in his letter dated 27.3.2003 addressed to the Commissioner of Income Tax seeking prior sanction for issue of notice u/s.148 after ITA Nos.997&556/Kol/2013-M/s.More International-A.Y.1996-97 lapse of 4 years from the end of the relevant AY. The reasons as stated in the said letter was that the AO received information from the DRI that M/s. More International i.e., the Assessee herein and another Assessee by name M/S.More Overseas were importing huge consignments without paying customs duty by forging import documents. It is further stated in the said letter that the AO was in receipt of such documents and on perusal he was of the view that the Assessee herein had imported consignments of polyprophylene Grade H-4500 HDPE worth several lakhs of rupees against bills of entry with specific numbers. It has also been stated in the said letter that the DRI had issued show-cause notice on account of evasion of duty on imports and all these imports prima facie are found not disclosed for income tax purposes in relevant AY. Hence the AO entertained belief that income chargeable to tax has escaped assessment exceeding Rs.1 lac.
The Assessee vide letter dated 27.11.2003 of its counsel pointed out that it was filing return of income in response to the notice dated 28.3.2003 under protest and that the initiation of reassessment proceedings is barred by time as laid down in the proviso to sec.147 of the Act. In the return of income filed the Assessee declared total income of Rs.21,889/- which is the same total income declared in the return originally filed on 29.11.1996. The AO passed an order of assessment u/s.147 read with Sec.143(3) of the Act dated 31.3.2004. In the said order the AO has referred to the fact that the Commissioner of Customs, Customs House, Kandla in his order dated 28.12.2000 had found that the Assessee had during the previous year relevant to AY 2006-07 imported 504 MTS of HDPE valued at Rs.1,36,87,350/- and sought clearance of the same from the Kandla Customs House with forged/tampered licences and evaded customs duty amounting to Rs.1,05,79,669/-. The AO has further referred to the fact that when the above facts were confronted to the Assessee, the Assessee pleaded that the aforesaid sales had been duly disclosed in the books of accounts maintained on the basis of which total income was declared under the Act and that the sales were made to two parties by name Pan Am Impex Corporation and Rohan Exim. The AO after recording his inability to serve notice u/s.133(6) of the Act on these ITA Nos.997&556/Kol/2013-M/s.More International-A.Y.1996-97 parties at the address given by the Assessee thereafter issued a show cause notice dated 18.3.2004 to the Assessee to show cause as to why the customs duty of Rs.1,05,79,669/- be not treated as understatement of sales/closing stock. The AO after referring to the order of Commissioner of Customs dated 28.12.2000 held that the Assessee evaded customs duty amounting to Rs.1,05,79,669/- and the same has to be regarded as suppressed sales not recorded in the regular books of accounts and added the aforesaid sum to the total income of the Assessee.
The Assessee challenged the validity of initiation of reassessment proceedings u/s.148 of the Act before the CIT(A). The reasons recorded by the AO before issuing notice u/s.148 of the Act are set out in page-6 para-2 of the CIT(A)’s order. The Assessee contended before CIT(A) that the initiation of reassessment proceedings is barred by time as laid down in the proviso to sec.147 of the Act. It was submitted that under the proviso to sec.147 of the Act, where an assessment has been completed u/s 143(3) of the Act, and thereafter the AO seeks to take an action u/s 147 of the Act for re-assessment of income escaping assessment after the period of 4 years from the end of the relevant assessment year, than such proceedings can be initiated only where income chargeable to tax has escaped assessment for that assessment by reasons of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. According to the assessee the assessment in the present case was sought to be re-opened, after expiry of 4 years from the end of the relevant assessment year and an order of assessment u/s 143(3) has already been passed. It was therefore, submitted by him that the proceedings u/s 147 of the Act are barred by time. In this regard, it was also argued even in the reasons recorded there is no reference to the failure on the part of the assessee to fully and truly disclose the material facts. Reliance was placed on the decision of the Hon’ble Bombay High Court in the case of Hindustan lever Ltd. Vs. ACIT 268 ITR 332 (Bom) wherein on identical facts initiation of reassessment proceedings were held to be invalid. It was submitted that on identical facts, initiation of reassessment proceedings u/s.147 of the Act in the case of another sister concern of the Assessee viz., Ashwani Kumar More in ITA Nos.997&556/Kol/2013-M/s.More International-A.Y.1996-97 order dated 15.7.2006, was held to be bad in law and the order of the Tribunal has also been upheld by the Hon’ble Calcutta High Court. It was pointed out that the ITAT in coming to the aforesaid conclusion had placed reliance on the decision of the Hon’ble Supreme Court in the case of Coca cola Export Corporation Vs. ITO 231 ITR 200 (SC) wherein it was held that when facts showed that imports were duly recorded in the books of accounts, there was no basis to form opinion regarding escapement of income. It was also argued that initiation of reassessment proceedings were based on a mere change of opinion and reliance was placed on the decision of the Hon’ble Delhi High Court in the case of CIT Vs. Kelvinator of India Ltd. 256 ITR 1(Del.).
The CIT(A) on consideration of the above submissions held that initiation of reassessment proceedings were bad in law and in holding so followed the decision of the Hon’ble ITAT in the case of Ashwini Kumar More (supra). The following were the relevant observations of the CIT(A): “5.3 I have perused the assessment order and considered the submission of the appellant. In the case of Shri Ashwani Kumare More, A.Y. 1996-97 on the identical facts, the ITAT, Kolkata "C" Bench in their order no. (Kol) of 2005 dated 14.07.2006 has held- "We have perused the orders of authorities carefully and also perused the decision of the Hon'ble Supreme Court in the case of Coco Cola (supra) and the reasons recorded by the AO and we find that in the present case the ratio of the above decision is squarely applicable. Therefore, we hold that there was inherent lack of jurisdiction in the ITO to issue the notice u/s.148 merely on the basis of action initiated by Cu tot Department. The Custom Act and I.T. Act operate in two different fields. Even ii there is a case of custom duty evasion, that will be dealt' by the Custom Department. We agree with the Id. Counsel that even if finally it is establi shed that the assessee had evaded custom duty, that will be a liability for the assessee but under no circumstances it can be taken as income of the asses assessable under the I.T. Act. Therefore, we hold that the jurisdiction u/s.147 has not been validly assumed. "
Since the initiation of reassessment proceedings were held to be bad and invalid, the CIT(A) did not consider the case of the Assessee on merits. Aggrieved by the order of the CIT(A), the revenue is in appeal before the Tribunal. The grounds of appeal
of the Revenue reads as follows:
1. The Ld. CIT(A) erred in giving relief on sale of imported goods thereby suppressing the realization of import duty to the assessee by allowing the assessee Rs.1,05,79,669/-. ITA Nos.997&556/Kol/2013-M/s.More International-A.Y.1996-97
2. For that the A.O has started proceedings of 147 is based on materials in record. The material is under examination with CEGAT. The amount involve in this case not less that Rs.1,05,79,669/- and the information has not been proved incorrect. The addition on the part of “Custom Duty Evasion “resulting in evasion of Income Tax as the assessee has not shown the sales in regular books of account so it can be termed as suppressed sales, which the A.O. has rightly observed in his order u/s 147/143(3).
3. The department craves leave to put additional ground/grounds and/or to alter/amen d/modify the present grounds.”
We have heard the submissions of the learned DR who submitted that the information received from the Customs Authorities was a valid basis to form opinion regarding escapement of income and for initiation of reassessment proceeding. The learned AR relied on the order of CIT(A) and contentions put forth before the CIT(A).
We have given a very careful consideration to the rival submissions. On identical facts proceedings for reassessment were initiated in the case of Shri Ashwani Kumar More for AY 1996-97. Ashwani Kumar More is a business Associate of the Assessee carrying on business at the same business premises of the Assessee and was subjected to search and seizure operations by the DRI. In his case reassessment proceedings were initiated on identical reasons. The reasons recorded in the case of Ashwani Kumar More (supra) are set out in para 9 page-5 of the order of the Tribunal dated 14.7.2006 a copy of which is placed at pages 16 to 24 of the Assessee’s paper book. The operative portion of the said order has already been extracted by the CIT(A) in his order which we have set out in para-7 of this order. It is clear from the order of the Tribunal that no reassessment proceedings could be initiated merely on the basis of action initiated by Customs Department. We also find that in the case decided by the Tribunal the stage at which reassessment proceedings were initiated u/s.147 of the Act was when show cause notice was issued by the Customs Authorites and in the reasons recorded by the AO in the present case also it was at the stage of show cause notice before the Customs Authorities. The decision rendered by the Tribunal will therefore squarely apply to the present case . &556/Kol/2013-M/s.More International-A.Y.1996-97
We are also of the view that admittedly, the proviso to sec.147 of the Act referred to in the earlier part of this order is applicable in the present case since assessment for AY 96-97 had been completed by the AO originally u/s.143(3) of the Act and the reassessment proceedings were sought to be initiated on 28.3.2003 beyond a period of 4 years from the end of the relevant assessment year. The AO for initiating the re- opening of the assessment proceedings beyond the period of 4 years from the end of the relevant assessment year has to establish that there was escapement of income chargeable to tax because of the failure of the assessee to disclose fully and truly the material facts necessary for the assessment. Neither in the reasons recorded for re- opening the assessment nor in the order of re-assessment u/s147 of the Act. The AO has not brought out facts to show any omission on the part of the assessee to disclose fully and truly the material facts when the original assessment was completed. We are of the view that the re-opening of the completed assessment u/s 143(3) of the Act beyond the period of 4 years cannot be justified. We hold that the re-opening of the assessment is beyond the time contemplated by the proviso to sec.147 of the Act and therefore, initiation of re-assessment proceedings is held to be bad.
In this regard we find that the decision of the Hon’ble Bombay High Court in the case of Hindusthan Lever Ltd. (supra) supports the plea of the Assessee. In the said decision the Hon’ble Bombay High Court, on identical facts as in the case of the present Assessee before us, held as follows:
“Where an assessment under sub-s. (3) of s. 143 has been made for relevant assessment year, no action can be taken under s. 147 after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reasons of the failure on the part of the assessee to disclose all material facts necessary for his assessment for that assessment year. The reasons recorded by the AO nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the AO to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the AO to reach to the conclusion as to whether there was failure on the part of the ITA Nos.997&556/Kol/2013-M/s.More International-A.Y.1996-97 assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the AO to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the AO. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The AO, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the AO cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced. The impugned notice itself being beyond the period of four years from the end of the asst. yr. 1996-97 and not complying with the requirements of proviso to s. 147, the AO had no jurisdiction to reopen the assessment proceedings which were concluded on the basis of assessment under s. 143(3). On this short count alone the impugned notice is liable to be quashed and set aside.”
Even on the basis of the above contention, we are of the view that the order of the CIT(A) is just and proper and calls for no interference. We therefore confirm the order of the CIT(A) and dismiss the appeal by the Revenue.
In the result, the appeal by the Assessee as well as the Revenue are dismissed.
Order pronounced in the Court on 02.03.2016.